Working Paper: CEPR ID: DP4667
Authors: Giovanni Cespa
Abstract: Fundamental information resembles in many respects a durable good. Hence, the effects of its incorporation into stock prices depend on who is the agent controlling its flow. Similarly to a durable goods monopolist, a monopolistic analyst selling information intertemporally competes against themself. This forces them to partially relinquish control over the information flow to traders. Conversely, an insider solves the intertemporal competition problem through vertical integration, thus exerting a tighter control over the flow of information. Comparing market patterns I show that a dynamic market where information is provided by an analyst is thicker and more informative than one where an insider trades.
Keywords: analysts; durable goods; monopolist; information sales; insider trading
JEL Codes: G10; G12; G14; L12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Monopolistic analyst (D42) | Thicker market (D49) |
| Monopolistic analyst (D42) | More informative market (G14) |
| Insider (Y60) | Thinner market (D49) |
| Insider (Y60) | Less informative prices (E30) |
| Monopolistic analyst (D42) | Market depth (G10) |
| Insider (Y60) | Reduced trading intensity (F19) |
| Control over information (D83) | Market efficiency (G14) |